Question

D’Souza Company sold 10,000 units of its product at a price of \(80 per unit. Total variable cost is \)50 per unit, consisting of \(40 in variable production cost and \)10 in variable selling and administrative cost. Compute the manufacturing (production) margin for the company under variable costing.

Short answer

The manufacturing margin of the company is$400,000.

Step-by-step solution

Meaning of Manufacturing Margin

In managerial accounting, manufacturing margin refers to the profit margin left in the hand of a business entity after deducting the variable product cost from the sales revenues generated in a particular period.

Computation of manufacturing margin

$\begin{array}{rcl}\mathbf{\text{Manufacturingmargins}}& \mathbf{=}& \left(\text{Sellingprice}-\text{Variablesproductcost}\right)\mathbf{\times }\mathbf{\text{Numberofunitssold}}\\ & \mathbf{=}& \left(\$80-\$40\right)\mathbf{\times }\mathbf{10}\mathbf{,}\mathbf{000}\\ & \mathbf{=}& \mathbf{\$}\mathbf{400}\mathbf{,}\mathbf{000}\end{array}$